Interview with the CEO

 

João Manso Neto | Chief Executive Officer

João Manso Neto knew he would face challenges wheN he became ceo of edpr at the begiNNiNg of 2012. the reNewable eNergy iNdustry is goiNg through maJor chaNges. here João discusses how edpr maiNtaiNed its stroNg positioN duriNg the past year despite setbacks iN the iNdustry, aNd his visioN aNdstrategies for thefuture.

buSineSS enViROnmenT and PeRFORmanCe

João, could you give an overview of the main challenges edPR faced last year and how things look going forward?

The renewable landscape, in which we have thrived, has been shifting over the last couple of years.

Energy demand has slowed down in our core markets, as a result of the broader economic crisis. This slowdown has challenged the role of renewable energy and increased the misconception of renewables as a costly energy source. Now more than ever, it is important to step-up and clarify public opinion with regards to the benefits of renewables and manage the regulatory agenda.

Despite these issues some governments have shown vision. I would highlight the PTC extension in the US and the important agreement reached in Portugal, during September that respects the legal stability of the current contracts.

In this changing environment it is important to pre-empt changes and take decisive action. I believe that this is the biggest challenge we face. But I also believe that we are well prepared to succeed. We already expect most of our growth to come from countries outside our core markets of Iberia where we have developed a robust pipeline, and we are looking into new countries that show potential. Our recent investment in solar PV also allows us to benefit from the opportunities of this increasingly competitive technology that has shown global growth potential. Finally, we have been quick to adapt to a landscape of scarcer capital, focusing on our operating cash-flow to fund capex, and a balanced combination of sale of minority stakes and quality project financing.

How was edPR ́s performance during this challenging year?

In 2012 the company delivered quality growth. We met our growth targets with the addition of 504 MW to our portfolio that reached 8.0 GW. Production followed suit with 18.4 GWh, whilst revenues hit the 1.3 billion euro mark.

During the year, we were able to swiftly execute our projects in Spain and the US before critical deadlines, commissioned the first wind farms in Italy and made strong progress in our expansion in Eastern Europe as well as in solar PV. We were also the first consortium from the UK offshore Round 3 to apply for consenting for approximately 1 GW. The first prospecting stages in new markets were launched and we are keen to capitalize on these initiatives in the short-term.

At the same time, we were able to successfully execute our strategic agenda and ended the year on an exciting note. We started with our asset rotation strategy and reached attractive agreements on two very important transactions to sell non-controlling interests in operating wind farms, in the US and in Portugal. The strong performance throughout the year naturally produced solid financial performance by year-end. Our EBITDA was up 17% year over year, our Net Profit increased 43% and for the first time we were cash-flow positive. In line with our commitment, EDPR management has proposed for the first time a dividend payment.

edPR in THe LOnG-TeRm
Lately, there has been some renewed debate about the role of renewables. what message would you send to stakeholders, governments and consumers?

My main message is clear and simple. Renewable or cost effective energy is not a trade-off that consumers and their governments have to make. They can have both. Wind energy is at a stage where it is clearly cost competitive with conventional generation sources, while solar PV’s competitiveness is increasing year afteryear.

I’m clearly aware that there is a public misconception that renewables are expensive and that governments and tax payers have to pay extra if they want the benefits of CO2-free generation sources. I believe it is our duty to clarify and inform the public with regards to this issue.

For new investments, if we look at the many energy generation sources, renewable and conventional, over their entire useful life considering initial investment, fuel, O&M and CO2 costs. We conclude that the average cost of one MWh produced by an onshore wind farm is cheaper than that produced in a coal or gas fired power plant, whilst for solar plant it is quickly approaching this level.

Given the current and growing competitiveness of renewables, I am certain they will play a critical role in our energy future. As endogenous and CO2-free generation sources, renewable are vital for ensuring energy security and combating climate change. Additionally, they have a strong impact on the economy through job creation, economic development, know- how and innovation.

in may edPR presented its business plan for 2012-15. Could you guide us through the key topics?

The starting point for the business plan is our existing portfolio of assets. Our young asset base, which has shown strong efficiency metrics will provide a stable and recurrent cash-flow stream. This cash-flow ensures high value creation for our shareholders and will be critical to support growth.

Quality growth is the second point in our plan. In the next three years we expect to gain a strong foothold in new growth markets such as Poland, Romania and Brazil. These markets constitute the main drivers of EDPR’s growth. Additionally, in light of the recent PTC extension in the US new growth opportunities are now being considered. We also expect to diversify our growth options by investing in new markets and/or new technologies in coming years. It is important to point out that, we expect that these new projects to be added in the following years will have profitability metrics above our current average. This demonstrates the intrinsic quality of these growth opportunities.

Finally, our asset rotation strategy will be a critical pillar to accelerate the value creation to our shareholders. It will lock in future cash-flows and allow for reinvestment in value added projects.

How does asset rotation tie into edPR’s strategy?

Asset rotation consists of the sale of minority stakes in operating wind farms. The main advantage of this new strategy is that it allows us to realize the value created during the development.

During the initial phases of project development in which the risks are higher, we leverage our expertise to deliver the projects to completion. Once the project is operational and the risks are significantly reduced, we consider selling minority stakes to investors. I must say that we have been positively surprised by the interest shown by many investors.

The partnership with CTG is clearly at the centre stage of this strategy. There is a commitment from CTG to invest 2 billion euro up to 2015 in minority stakes. Up to now we have already closed one transaction for Portuguese assets amounting to 359 million euro.

manaGinG a GLObaL COmPanY
what reflections do you have on your first year as CeO of edPR?

I believe that making revolutionary changes cannot be the obsession of a new CEO. My chosen approach is to focus on gaining an in-depth knowledge of the company, and then, progressively implement the changes I believe will extract the most from the teams and the business.

Although it did not come as a surprise to me, I have to say I found a company with an outstanding team, a robust cash flow-stream and a noteworthy drive to find suitable options for growth. That being said, there were naturally some tweaks, enhancements and improvement initiatives that I personally drove as priorities during my first 365 days as CEO.

Importantly, I implemented changes focused on promoting our operational excellence, prospecting new countries and executing our asset rotation program. On a higher level, I have stressed the need for quick decision making and implementation, since one day of delay may causes a hit to the bottom-line.

Managing a multinational company spread across 11 countries has also been a challenge. I believe it is very important to be close to our business and our employees, understanding the problems on the ground. This has led me to visit most of our geographies more than once.

what is edPR doing to prepare its employees for the changes in the industry?

We are fortunate to have an extremely valuable team of young and dynamic employees. They have been the driving force behind our current performance and will continue to be in the future.

In the future we continue to count on their willingness to change and drive to improve. In the coming years, growth will come from different geographies as well as new technologies. Mobility and cross technology training will be increasingly important for EDPR and our employees are prepared for this challenge.

The company will continue to invest strongly in training to fit our future needs, building on the know-how and qualifications that we currently possess.

How is edPR’s relationship with CTG?

The relationship and communication with CTG has been positive and fluid. I have personally visited Beijing a number of times for productive meetings and negotiations.

Both companies’ expertise and portfolio’s are complementary and this provides a solid base to move forward. We are constantly looking for new areas to share knowledge and study investment opportunities. In 2012 this partnership has already been fruitful with the completion of the first asset rotation transaction. In 2013, in addition to the continuation of the planed financial transactions, we see further development in other areas namely joint investment. I think we are currently only seeing the tip of the iceberg when it comes to this partnership. The partnership has huge potential in many strategic areas other than asset rotation.

would you like to leave a final message?

To conclude I would like to say to our shareholders that:

We are on the right side of the energy industry and in the best position to take advantage of future profitable growth opportunities.

We will continue to strive and excel, ensuring and maximizing value creation, both through our existing assets and via selective, low risk and profitable accretive growth.

Finally, I would like to thank you personally, along with all of our stakeholders for the confidence and commitment you’ve put into EDPR.